SBA’s legal woes not over with appeal

The American Small Business League wants the
last word on whether a Fortune 500 company can be considered a “small
business.”

The ASBL recently filed an appeal with
the U.S. Court of Appeals for the Ninth Circuit, against a judge’s
decision to dismiss the league’s case against the Small Business
Administration.

“Of course, I was very disappointed the judge
dismissed the case, but the way he dismissed it I was happy with,”
said Lloyd Chapman, ASBL president. “Our case was really about trying to
get an injunction to two SBA policies that we feel are illegal: the
grandfathering policy that allowed for them to report awards to Fortune 500
firms as small business contracts and the exclusionary rule that they use
to exclude two-thirds of the federal acquisition budget from their
calculations.”

“When you look at the judge’s ruling, it
really doesn’t even look like the same case,” Chapman continued. “It
looks like a ruling about someone who’s challenging in the way information
is reported.”

The dismissal states that Congress established the law requiring SBA
to give lawmakers information on federal small business contracting.

“If the Small Business Administration is
giving Congress bad information, then Congress can do something about it,
either in an oversight or legislative capacity,” the dismissal states. “Having
requested the report, Congress, not the judiciary, is in the best position to decide
whether it’s gotten what it wants.”

Every year agencies must report to the SBA on
whether or not they met small business contracting goals, and if an agency
doesn’t meet the goal, it must provide SBA with the reasons why the goal wasn’t
reached and a plan on how to address it.

The SBA shared earlier this year that in
fiscal 2015, the government reached — and in fact surpassed — its 23
percent overall small business procurement goal by spending 25.75 percent, or
$90.7 billion on small business contracts.

The ASBL filed its original lawsuit May 3 against the SBA, claiming the
agency has adopted the practice of awarding small business contracts to
Fortune 500 companies and met its goaling reports through “creative
accounting.”

“SBA characterizes contracts awarded to
Fortune 500 corporations as ‘small business contracts’ for the purpose of
claiming federal agencies have attained their small business contracting
goals,” the ASBL stated in its lawsuit.

The ASBL also claims in its suit that the SBA
can only say it meets the 23 percent goal by “creating, through agency fiat, a
class of government contracts which are, solely in the view of the SBA, subject
to exclusion from being considered as part of ‘the total value of all prime
contract awards’ as stated in the Small Business Act.”

The SBA in its motion to dismiss, said it’s
not SBA’s practice of “misclassifying contracts,” but rather “the Department of
Defense, [General Services Administration], and NASA — through the FAR,
and under guidance from the Office of Management and Budget — make each agency
individually responsible for submitting and certifying the veracity of its
contracting data to Federal Procurement Data System.”

John Shoraka, SBA’s associate administrator
of Government Contracting and Business Development, told Federal News Radio in
a May interview that SBA’s exclusion practice was a carryover from the previous
administration, but is being updated.

The judge who dismissed the case said under
the Administrative Procedure Act, federal courts are not allowed to review
everything an agency does, only “final agency action.”

The SBA goaling report doesn’t meet the test
for final agency action, according to court documents.

“It neither alters the legal regime to which
individual agencies or small businesses are subject, nor results in direct and
appreciable legal consequences,” the dismissal states. “The report does not
carry penalties for an agency’s failure to meet the small business
participation goal. It does not bind agencies to comply with any proposed
remediation plan. Any appreciable consequence of the report — such as an
agency’s decision to start awarding more contracts to small businesses — would be
indirect, because the agencies make the ultimate decision whether and how to
award contracts.”

Despite the legal setback, Chapman remains
optimistic.

“Well, I think Congress passed the Small
Business Act and it’s the Justice Department’s job to enforce that law, and the
judge cannot think that it’s up to Congress to do this,” Chapman said. “I think
the ninth circuit will agree with me, that Fortune 500 firms aren’t small
businesses, and the word all means all. The Small Business Act says all
small businesses shall receive a minimum 23 percent of all contracts. Yet the
SBA has admitted that they use their exclusionary rule to exclude contracts for
a variety of reasons.”